The prolyl dipeptidase DPP-IV plays diverse and important roles in cellular functions. It is a membrane-bound exoprotease involved in the proteolytic cleavage of several insulin-sensing hormones. The inhibition of its enzymatic activity has been proven effective in the treatment of type II diabetes. Homodimeric DPP-IV interacts extracellularly with adenosine deaminase, and this interaction is critical for adenosine signaling and T-cell proliferation. In this study, we investigated the contribution of hydrophobic interactions to the dimerization of DPP-IV. Hydrophobic residues F713, W734, and Y735 were found to be essential for DPP-IV dimerization. Moreover, the enzymatic activity of DPP-IV was correlated with its quaternary structure. Monomeric DPP-IV had only residual activity left, ranging from 1/30 to 1/1600 of the dimeric forms. Using a surface plasmon resonance technique, we demonstrated that the affinity of these DPP-IV monomers for adenosine deaminase was not significantly altered, compared to that of dimeric DPP-IV. The study not only identifies the hydrophobic interactions critical for DPP-IV dimer formation, but also reveals no global conformational change upon the formation of monomers as determined by the protein-protein interaction (Kd) of DPP-IV with adenosine deaminase.